| Monopoly |
Perfect Competition
or Competitive Equilibrium |
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(1) The firm is in equilibrium at that level of output where MR equals
MC.
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(1) The most profitable output is also at a point where MR is equal to
MC.
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(2) The AR and MR curves are negatively inclined i.e., a firm can sell
more goods at lower and fewer goods at higher prices. The MR curve ties
below the AR curve.
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(2) The AR and MR curves facing competitive producer are perfectly
elastic, i.e., it is a horizontal straight line. A firm cannot alter the
market price by selling more or by selling less. The AR and MR curves
are equal and, therefore, coincide.
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(3) The monopolist can earn supernormal profits in the short
as well as in the long period. The firm need not equate the AR to the
lowest point of AC in the long run.
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(3) The firm can earn abnormal profits in the short run but in the long
run only normal profits are earned. The firm is in equilibrium when MR =
MC = AR = Minimum AC in the long run.
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(4) As the production of a commodity is in the hands of a single
producer, therefore, a firm has control over the output and price of
the commodity.
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(4) The competitive producer has no control over the price of the
commodity. It has to sell at the price determined by the intersection of
the forces of demand and supply in the market.
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(5) The single firm comprises the whole industry. The firm may not be of
the optimum size. The possibility of the new firms to enter into the
industry, is restricted.
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(5) There are many firms comprising an industry. All the firms are of
the optimum size in the long run. The new firms can enter the industry.
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(6) The equilibrium price is higher than MC. The monopolist
always tries to maximize profits by fixing the price higher than the
competitive price. The consumers, therefore, have to pay a higher price
and thus stand at a disadvantage.
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(6) The equilibrium price is equal to MC. The entrepreneur charges the
price which gives him the normal profit in the long run. So customers do
not stand at a disadvantage.
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(7) The monopoly firm is a price seeker.
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(7) The competitive firm is a price taker.
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(8) A monopoly firm is not a price taker. Hence, it cannot have a
supply curve. It chooses output and price in a way that gives. It
the highest possible profit.
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(8) A competitive firm cannot exert any influence on the price. The firm
is a price taker and so has a supply curve. The portion of
MC curve above AVC curve is supplied.
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